Straight Talk On Auto Leasing

March 30, 1997|By Free-lance writer Jim Sulski.

Because of his 25 years in the business, Dick Biggs is probably the most critical, yet optimistic, person when it comes to auto leasing. Biggs, who has been involved in the auto leasing business since 1970, has become a nationally known sales trainer for auto leasing, teaching people at auto manufacturers, dealerships, banks and credits unions how to lease cars.

Among his clients are Cadillac, Infiniti, Honda, Nissan and Chevrolet.

Biggs also is president of Biggs Auto Leasing Corp., an independent leasing company for the last 14 years based in Roswell, Ga., a suburb of Atlanta.

Q--Can you characterize the leasing industry right now in a word or two?

A--Confusion is not a bad word but it's improved a lot in the last 10 years. The word that's driving it from the consumer standpoint more than anything is affordability.

Cars are more expensive. They've gone up faster than people's income. In 1970, the average car cost about $2,000 or $3,000, while the average household income was about $12,000. So incomes were five to six times the price of a car.

Today, the average car is just under $20,000 and the average household income is about $37,000. So incomes are not even twice the price of a car.

Only approximately 10 percent of consumers can pay cash for a car. That leaves 90 percent who have to finance. Of that 90 percent, most can't afford the high payments and upfront money. So it almost forces some people into leases, which is bad, because leasing is not for everyone.

Q--Who should lease?

A--It's very simple. It depends if you want to--not need to-- change cars often, between every two and four years. That's a personal preference.

Another factor is if you don't mind having a continuous monthly car payment. If you lease cars for eight years, you're going to have a car payment continuously. If you finance and pay off the car in four years, you can keep it another four years.

Q--Which person comes out better?

A--There's no question that if you finance a car for four years and keep it for six more without payments, that's cheaper than leasing three cars over a nine-year period with a continuous payment. Though it's cheaper in terms of a payment, it may not be cheaper in terms of upkeep as the car gets older.

Q--What do the new leasing laws mean for the consumer?

A--The law enacted by the Federal Reserve Board, which regulates all auto financing, will go into effect Oct. 1, 1997. However, most of the lease funders were going to have the new paperwork and lease contracts in January and February at the latest because they want to get it done. Plus, consumers are going to be asking for the new lease agreements.

The old leasing laws were very industry-oriented. The new leasing laws are very consumer-friendly. Everything is spelled out and everything is disclosed and there's no hidden agenda. With the old leasing law, there was a hidden agenda.

Under the old laws, you didn't have to disclose the selling price of the car--the capitalized cost. Under the old laws, you had no idea what you were paying in lease charges--the equivalent to finance charges when you bought the car.

What clouded the situation was that lease payments are almost always considerably lower than a purchase payment. And consumers assumed that's all that mattered. As a result, there were a lot of abuses.

For example, let's say you go in and buy a car and you dicker and they give you a price of $18,000 for the car. Then they quote you the monthly payment for that car and it's too high. It's $400, which is a typical car payment, but you say your budget is $250.

Now, if you bought that car for $18,000 and you put $2,000 down, you're financing $16,000. If you lease that car, you take that $18,000 and subtract what it will be worth at the end of the lease--let's say $8,000. That leaves $10,000 and the payments on $10,000 are going to be lower than the payments on $16,000.

Because the monthly payment is substantially lower, the dealer would bump the selling price of the car from $18,000 to $20,000. Now that adds another $60 to the payment, to maybe $310 overall, which still looks good in relation to $400. You're not going to haggle to get that price down with a lease because the payment is so low anyway.

So the dealer was able to pick up an extra $2,000 in profit and the customer didn't have a clue.

Under the new law, the consumer gets to know the selling price. Now, against a purchase, you can compare the monthly payment, plus the acquisition cost of the car--the selling price versus the capitalized cost. The consumer also will be able to compare finance charges versus lease charges.

As a result of the new laws, leasing is going to grow even more because the trust element is going to be there.